TreasuryONE’s Andre Cilliers on rand strength – ‘When has the rand ever behaved properly?’

In this week’s Currency Focus podcast, TreasuryONE currency risk strategist Andre Cilliers joins Bronwyn Nielsen to discuss both local and international currency movements. The rand has shown considerable strength in the past few days, despite commodity prices softening. Cilliers says he hopes the rand will give up some of the gains against the major currencies. “It’s either too weak or too strong; it always pulls a little bit too far on that elastic band and then makes a bit of a correction. So, yes, I think it’s a little bit too strong. It’s gone a little bit too far and people are a little bit ahead of themselves.” – Claire Badenhorst

Andre Cilliers on whether moving to Level 2 has an impact on the rand:

Unfortunately, I have to say that that has got absolutely no impact on the markets in terms of the rand this morning at all. I think when we look at that impact, that’s something that will come through in economic growth figures. Yes, certainly it spells a positive on that end because more places will be open. Well, not really open, but more places will be able to function in a better way than they have before. I think the fact that people can be 250 people inside now will benefit restaurants, etc. a heck of a lot. It will benefit the tourism sector a heck of a lot. That’s certainly needed and that will be positive but that’s longer-term; no direct impact this morning.

On the positive impact of the vaccination programme:

The positive news that came out of last night’s address by Mr Ramaphosa was the fact that our vaccination programme now runs in the order of a million people per week. Now, that’s very positive. If you look at that, then we have some eight to nine weeks, call it 10 weeks, before the holiday season actually kicks in for December. So that simply tells me that we could get our vaccination programme up to another 10 million or so. If people play together and they really go and gather, then we could most probably get that a little bit higher and that will be positive and that could impact on how severe a fourth wave is. We also have to take into account that we [are] speaking about the fourth wave in December. The more people that are vaccinated, the less impact, and we will only see that impact coming through after the holiday season because that’s when people return and they’ve been infected and they will be hospitalised, etc. So very easily, another 10 to 15 million could possibly be vaccinated before then.

On concerns around the local elections and Covid:

That’s more of a worry at this point in time because that’s a lot closer and we have less time to vaccinate more people. But I do think that the measures that will be put in place will be very, very strict. The observance of gatherings will be very, very strict, especially on the voting day. I think social distancing, you know, that would be a very controlled area and concentrated in certain places, so I think that will be well controlled and that will help. It won’t be uncontrolled gatherings.

On his concerns surrounding violence during election time:  

I’m still on alert level there in terms of violence during the elections. I think the situation between political parties and the way, you know, they handle their things, especially from the far left-wing side and even from the far right-wing side, is dangerous. It could erupt into chaos. And if you look at some of the killings that have taken place just over the last week in KwaZulu-Natal, then I’m beginning to wonder whether that might not be politically inspired already. So that remains a concern to me.

On trading ranges for the foreseeable future:

We are having some interesting times. We’ve got a rand that wants to strengthen. It did strengthen a heck of a lot and that’s amidst a period where the dollar had actually also strengthened, where you would have expected that the rand will show some signs of weakening during that strengthening. If we look at the euro, then we’ve seen that coming down from the R18.60, R18.70 levels. We’re currently trading down below the 118 and we’re down at the 117, with the rand remaining at the R14.20 levels, you know, so our cross rate’s well below R17 against the euro, our pound lying at R19.63.

So the rand [is] actually very strong at this stage and doing very well. Concerns me a little bit – where’s that little elastic band of pulling too far, too strong, when it’s going to bounce back to the R14.50, R14.60 range where I’m actually very comfortable with the currency. So trading ranges – R14.10, R14.70, with the risk at this point in time rather to the upside if the dollar continues on its strengthening path.

Well, when have we ever seen the rand behave properly? It’s either too weak or too strong; it always pulls a little bit too far on that elastic band and then makes a bit of a correction. So, yes, I think it’s a little bit too strong. It’s gone a little bit too far and people are a little bit ahead of themselves. So I think rather on the upside, back to the R14.60, R14.70 levels.

On possible surprises in the international space:

Well, not really. I mean, you know, we’ve spoken a heck of a lot in the last couple of weeks about the Federal Reserve and the drive that they have to see employment rather than curbing inflation or containing inflation. They [are] still on very much the same drive. It was confirmed last week by the European Central Bank that they are on exactly the same drive. They both (on the European side and on the American side) now mentioned that they will start tapering on their quantitative easing a little sooner, but they’re still happy with the inflation levels that’s above their targets and rather looking at growth and fostering growth and helping the economies return to sustainable growth. So no surprises, and I doubt whether there will be any right up to the end of the year.

On our interest rates following suit with the rest of the world:

We will follow suit and Mr Lesetja Kganyago and his MPC has always been slightly ahead of the curve. But there’s no immediate interest rate increases out of the US or out of Europe, and if you look at our inflation- and we spoke about that two weeks ago – our inflation [is] well contained, our inflation [is] lower than that of the Americas. There is actually room for the Reserve Bank to come in with a lowering of 50 or 75 basis points of interest rates.

But I said two weeks ago they will not do that. I confirm that’s still my standpoint. They will not change. But that would simply mean that they have room to remain at the current levels of interest rates for a little bit longer. Still giving a lot of room for the people on the South African side with the lower interest rate levels saving, being able to repay their debt, and even if they were to make new debt, make debt at fairly low levels.

On commodity prices: 

Yes, especially on the top three – the platinum, palladium, and gold – quite a bit of movement. I’m not too concerned. You know, people were concerned a little bit about the growth levels of economies. We have seen a very, very sharp movement upwards on those. A bit of consolidation is actually a very good thing. And then as economies continue to grow, coming out of the Covid periods, I think the demand will still be there. The consolidation is, as I say, more positive to me than anything else and the growth and the upward movement would just be at a slower pace and less of an incline. But the demand [is] still there.

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